Westwood Holdings Group, Inc. (NYSE:WHG): Diversified Asset Manager Poised for Growth

Published on September 24, 2024 | Ticker: WHG

Westwood Holdings Group, Inc. (NYSE:WHG) is a diversified asset manager that provides investment advisory and trust services to institutional investors, mutual funds, and high net worth individuals. The company has a strong track record of delivering competitive, risk-adjusted returns for its clients through its value-oriented investment approach.

Business Overview

Westwood operates two main segments: Advisory and Trust. The Advisory segment provides investment advisory services to corporate pension and profit-sharing plans, public employee retirement funds, endowments, foundations, and individuals. The Trust segment provides trust and custodial services, as well as participation in common trust funds, to institutions and high net worth individuals.

Westwood has established a strong presence in the asset management industry, with $16.2 billion in assets under management (AUM) and $1.0 billion in assets under advisement (AUA) as of March 31, 2024. The company's AUM is diversified across institutional (48%), wealth management (26%), and mutual fund (26%) clients. Westwood's investment teams have significant industry experience, with an average of over 20 years of investment experience.

Financial Performance

Westwood reported annual revenue of $89.78 million and net income of $10.57 million in the most recent fiscal year. The company generated annual operating cash flow of $15.40 million and free cash flow of $15.25 million.

In the first quarter of 2024, Westwood reported total revenues of $22.73 million, which was comparable to the prior year's first quarter. The company's comprehensive income for the quarter was $2.30 million, or $0.27 per share, compared to $0.70 million, or $0.09 per share, in the same period last year. Non-GAAP economic earnings were $3.01 million, or $0.36 per share, in the current quarter, compared to $1.72 million, or $0.22 per share, in the prior year's first quarter.

Westwood's financial position remains strong, with $46.6 million in cash and short-term investments and a debt-free balance sheet as of March 31, 2024.

Segment Performance

The Advisory segment generated $19.19 million in revenues during the first quarter of 2024, compared to $19.36 million in the prior year's first quarter. The Trust segment reported revenues of $5.17 million, up from $5.11 million in the same period last year.

Westwood's institutional AUM increased to $7.74 billion as of March 31, 2024, up from $7.04 billion a year earlier, driven by net inflows and market appreciation. Wealth management AUM grew to $4.22 billion, up from $3.77 billion a year ago, while mutual fund AUM remained relatively stable at $4.19 billion.

Outlook

Westwood's management team is optimistic about the company's growth prospects, citing a healthy pipeline of new business opportunities in both the institutional and intermediary channels. The company recently launched its first active ETF, the Westwood Salient Enhanced Midstream Income Fund, which has seen strong initial trading volume and interest from the advisor community.

Additionally, Westwood is investing in its Managed Investment Solutions (MIS) capabilities, which the company believes will open up significant new pools of capital. The MIS team has received an exceptional reception from clients and prospects, and Westwood expects to onboard its first MIS client in the fourth quarter of 2024.

Risks and Challenges

Westwood faces several risks and challenges, including the highly competitive nature of the asset management industry, the potential for client redemptions, and the impact of market volatility on the company's AUM and revenues. The company also faces regulatory risks, as changes in financial services regulations could adversely affect its business.

Conclusion

Westwood Holdings Group, Inc. is a well-established asset manager with a diversified business model and a strong track record of delivering competitive returns for its clients. The company's recent investments in new products and capabilities, such as the Westwood Salient Enhanced Midstream Income Fund and the Managed Investment Solutions platform, position it for future growth.

While the asset management industry faces ongoing challenges, Westwood's solid financial position, experienced management team, and innovative product offerings suggest that the company is well-positioned to navigate the competitive landscape and continue delivering value for its shareholders.

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